if Fed didnt exist, then overnight interbank rates would be set by the freemarket, and that would be very close to the real shorterm rates, like 3-month TBill yield
then you have the Prime Rate, which ties to credit cards, and that too would be set very close to the 3-month Bill yield
then you have Equity Line loans, as in real estate, which would also be set close to 3-mo TBills
and car loans would be tied to shorterm rates also, since they typically run 3-4 years, again to 3-mo TB
so we see the entire shortend of our economy is linked intimately with the ill-advised policy of the Federal Reserve... they set targets for daily rates like overnights... but they also serve another critical role with our country's regional banks... they set policies on collateralization within banks for their entire loan portfolios... e.g. XYZ Regional out of CHicago must have 5% deposits in face of their multi-$M loan portfolio... and the Fed also sets other policy such as stringent conditions for accepting loans at all, the details of which I dont fully understand
Fed policy affects credit cards, equity loans, car loans, all very imoprtant consumer elements of our consumer based economy... they override the free market in these respects, arrogantly, ineptly, like drunken sailors
on the long end, the Fed has little influence... mortgage are underpinned by 10-yr TNotes, and not much 30-yr TBonds... most bankers even get this wrong... THAT IS WHY REAL ESTATE HAS NOT GONE INTO THE SHITTER, pardon my French on a Sunday morning... basically the equilibrium-based economy is healthy, while the Fed-controlled economy is teetering
the Federal Reserve was originally designed to oversee, not dictate monetary policy
now we swing like a manic depressive economy at the mercy of their stupidity and arrogance and obfuscation directed toward the very people they are supposed to serve
I hope this helps
what a joke
/ jim |
